The next possible target is 6.83 against the greenback, with a potential Federal Reserve interest-rate increase supporting the dollar, said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. The People’s Bank of China may need to step up efforts to prevent market fears over any sharp depreciation, according to a Scotiabank report written by Singapore-based foreign-exchange strategist Qi Gao.The charts below show three ETFs: CYB (yuan), FXE (euro) and UUP (Dollar Index DXY).
The PBOC set its daily fixing at 6.7258 against the dollar, extending a six-day weakening run to 0.9 percent. The onshore yuan rose 0.05 percent to 6.7152 as of 4:57 p.m. in Shanghai, after dropping to a six-year low of 6.7230 earlier in the day, while the offshore rate climbed 0.1 percent. The Chinese currency has fallen 6.5 percent against a 13-currency index this year.
Prior to 2016 the yuan behaves very much like the U.S. dollar, a flat line (the base currency is always a flat-line). UUP is really a basket of short positions against foreign currencies, mainly the euro. It soars. The mirror image is the tumbling FXE.
Starting in 2016 with the shift to the basket, the yuan starts behaving very much like the euro. We also know the yuan depreciates more against a strong dollar than it rallies against a weak dollar. (See: Yuan Follows Dollar Down, But Not Up)
For it's part, the U.S. Dollar Index is could be forming a head-and-shoulders pattern, possibly a triple top if it hits 100 again, or a consolidation ahead of a bullish breakout above 100. If the latter, the yuan will break 6.83 and the PBoC will find depreciation pressure ratcheted up an order of magnitude.